Clifford Chance

Criminal proceedings against Lafarge in France and the United States are a stark reminder to multinationals of the consequences for prioritizing business continuity over political, safety, and human rights considerations.

Background

On October 18, 2022, a global building materials manufacturer headquartered in France, Lafarge SA ("Lafarge"), and its Syrian subsidiary, Lafarge Cement Syria SA ("LCS") (collectively, "Defendants"), pleaded guilty in US federal court to conspiracy to provide material support to foreign terrorist organizations ("FTOs") designated by the US State Department, including ISIS. This marked the first time the US Department of Justice has charged a company under the material support statute. 18 USC § 2339B. Pursuant to the guilty plea, the Defendants agreed to pay the US government $778 million in forfeiture and fines.

According to the guilty plea's accompanying statement of facts, from August 2013 through October 2014, using intermediaries to conceal the payments, Defendants paid the FTOs approximately $6 million consisting of fixed monthly “donations” and payments to ISIS-controlled suppliers so that employees, customers, and suppliers of Lafarge could pass through ISIS checkpoints.

In 2015, Switzerland-based Holcim Group ("Holcim") acquired Lafarge but did not discover the Defendants' connections to the FTOs in its pre-acquisition diligence. In February 2016, a website run by an opposition group to the Syrian regime alleged that the Defendants had purchased raw materials from and made other payments to ISIS. Holcim conducted an internal investigation and then publicly disclosed the payments made to the FTOs, which in turn led to criminal investigations by the French and US authorities.

The US Guilty Plea

The plea is significant from a US perspective for several reasons:

• Avoiding the use of US persons and the US financial system does not insulate activities from the reach of the US justice system: Under the US law criminalizing material support to FTOs, the US asserts extraterritorial jurisdiction over offenses even when the acts themselves have no connection to the United States. The US government need only show an unlawful agreement between the defendant and FTO and that one of the following conditions was present: the defendants were brought into and found in the United States, the offense occurred in part within the United States, the offense occurred in and affected interstate and foreign commerce, or the defendants conspired with a US national. This is an extremely low bar for the US government to clear for multinational defendants with extensive operations in the United States. Indeed, the Lafarge plea documents merely state in a conclusory fashion that each of these applied to Lafarge and LCS, while also noting that the offense did not involve employees of Lafarge in the United States, or its subsidiaries or business operations in the United States.
  
• The importance of transactional due diligence: Switzerland-based Holcim acquired Lafarge in 2015 but did not conduct due diligence on Lafarge's Syrian operations. This failure to investigate what the DOJ viewed as a high-risk investment weighed against Holcim in calculating the financial penalty even though Holcim itself did not plead guilty. This painfully illustrates that companies take on both the good and the bad in acquisitions, making diligence critical for determining how to price a deal or whether to proceed with it at all.
• Voluntary self-reporting can improve the outcome for companies with serious compliance failures: Lafarge did not self-report or proactively cooperate with DOJ's investigation, behaviors which DOJ has recently confirmed it would reward, including in the documents accompanying the Lafarge guilty plea and a memorandum issued last month.
• Companies must maintain policies around the use of personal devices and robust data management systems that are assessed on a continuing basis: The Defendants' executives used personal e-mail addresses (hosted by US service providers) for negotiations and agreements with ISIS, carefully avoiding using company systems and even receiving advice from an in-house lawyer that an email record should not be created. DOJ identified Lafarge's failure to retain and produce communications sent over these external systems as a factor that hampered the investigation and harmed Lafarge's ability to cooperate with DOJ. This is consistent with DOJ's recent focus on third-party messaging platforms as a significant corporate compliance risk.
• A twist on individual accountability: Although the guilty plea only extends to the Defendant corporate entities, Deputy Attorney General Lisa Monaco stated that the case is "instructive of the Department’s corporate crime priorities and what happens when companies and their executives make the wrong choices." She continued, "as I have emphasized before, individual accountability is a top priority" and signaled that the US government has taken part in the ongoing French criminal proceedings involving Lafarge and its former executives. While not a direct criminal action against the executives in the United States, the announcement suggests that DOJ may consider individual liability assessed elsewhere in determining whether its focus on individual accountability is satisfied.

The French Proceedings

Lafarge SA also faces criminal charges in France, where it is the first company to be indicted ('mise en examen') on charges of complicity with crimes against humanity. The company is also indicted on charges of financing terrorism, putting the lives of their workers in Syria at risk and violating embargos.

As to the counts on financing of terrorism, the US guilty plea will likely have a major impact on the company's defense in France. The French Supreme Court has ruled that a guilty plea in a foreign country for identical facts is not a basis to set aside the prosecution in France on similar grounds (Oil For Food decision of March 14th, 2018, RG N°16-82.117) (i.e., there is no "double jeopardy" rule in play). The prosecutors will therefore not only be able to continue their prosecution but also use the guilty plea as further evidence of the willfulness of the conduct. Although Lafarge SA could theoretically also enter into a similar negotiated resolution through the CRPC (Comparution sur reconnaissance préalable de culpabilité) which is open to all offenses except the most serious crimes (see articles 495-7 and 495-16 of the French Code of criminal procedure), this has never been done on counts of terrorism financing and would be a first of a kind.

In any event, Lafarge SA will not be able to enter into a guilty plea in France for the charges of complicity in crimes against humanity which is excluded from the scope of the CRPC. If such charges are maintained against the company, a criminal trial will follow. In this respect Lafarge SA already indicated to the French press that it intended to "defend itself against any legal action that it would consider ungrounded" (AFP, October 18, 2022).

The fact that this unprecedented and highly publicised case concerning a French company has resulted in a final order in the United States before any resolution in France underlines the protracted nature of French criminal proceedings, particularly in novel situations such as this. It is a reminder that companies and their executives have to carefully manage complex and overlapping risks from various jurisdictions if they engage in business relationships with entities or persons subject to national security, human rights, and/or criminal concerns.